Why Do Mortgage Rates Change? What Homebuyers Should Know

When mortgage rates move, the headlines can make it feel like your homebuying plans need to move with them.

But a changing market doesn’t automatically mean you should rush to buy, put your plans on hold, or try to predict exactly where rates are headed next.

Understanding why mortgage rates change can help you put market headlines in context and focus on something more useful: what current conditions could mean for your individual home financing options.

What’s Affecting Mortgage Rates Right Now?

Mortgage rates can respond to changing expectations about inflation, economic growth and Federal Reserve policy, along with movements in the broader bond market.

Recent mortgage market activity offers a good example. Inflation concerns, geopolitical developments and changing expectations about monetary policy have contributed to higher Treasury yields and mortgage rates.

Why does that matter if you’re thinking about buying a home?

Mortgage rates are influenced by the bond market, including yields on mortgage-backed securities and U.S. Treasury securities. When investors become more concerned about inflation or expect interest rates to remain higher, bond yields can rise and put upward pressure on mortgage rates.

The important takeaway is that there isn’t one person, announcement or economic report that determines your mortgage rate. Multiple forces are at work.

Does the Federal Reserve Set Mortgage Rates?

No. The Federal Reserve does not directly set mortgage rates.

The Federal Open Market Committee sets a target range for the federal funds rate, which is a short-term interest rate. Its monetary policy decisions can influence broader financial conditions and expectations about future interest rates, which can ultimately affect longer-term borrowing costs such as mortgage rates.

Mortgage rates are influenced by several interconnected factors, including:

• Inflation and expectations about future inflation
• Treasury and broader bond market activity
• Mortgage-backed securities markets
• Economic and employment data
• Expectations about Federal Reserve policy
• Global economic and geopolitical developments

That’s why a Fed announcement doesn’t necessarily result in an identical—or immediate—change in mortgage rates.

Why Does the 10-Year Treasury Matter to Mortgage Rates?

You’ll often hear the 10-year U.S. Treasury yield mentioned when mortgage rates are in the news.

The two don’t move in perfect lockstep, but longer-term Treasury yields provide an important benchmark for financial markets. Mortgage-backed securities compete with Treasury securities and other investments for investor demand, so changes in bond yields and investor expectations can affect mortgage pricing.

This relationship helps explain why mortgage rates can move before the Federal Reserve takes action. Financial markets are constantly adjusting based on what investors expect inflation, economic growth and monetary policy to look like in the future.

What Does This Mean if You’re Planning to Buy a Home?

Seeing mortgage rates move higher can be frustrating, especially if you’ve been waiting for the “right” time to buy.

But your mortgage decision involves more than a national market number.

The mortgage rate and financing options available to you can depend on factors such as your financial profile, loan program, down payment, property details, occupancy and market conditions.

National rate headlines can help you understand what’s happening in the broader market, but they can’t tell you exactly what your financing options will look like.

Instead of asking only, “What are mortgage rates doing?” it may be more useful to ask:

“What would buying a home look like for me right now?”

A personalized conversation can help put the market into the context of your budget, goals and timeline.

Should You Wait for Mortgage Rates to Fall?

There isn’t one answer that works for every homebuyer.

Mortgage rates can change quickly as new economic information reaches the market, and no one can predict their next move with certainty. Waiting may make sense for one household, while moving forward may make sense for another.

Rather than trying to perfectly time the market, consider understanding the numbers behind your decision.

A BankSouth Mortgage loan officer can help you explore financing scenarios, understand how different interest rates could affect a potential mortgage payment and evaluate available mortgage options based on your goals.

Focus on the Parts of Home Financing You Can Control

You can’t control Treasury yields, inflation reports or what Federal Reserve policymakers say next.

You can prepare for your homebuying decision.

• Reviewing your credit profile
• Considering how much you’re comfortable putting toward a down payment
• Exploring mortgage programs that may fit your needs
• Establishing a monthly housing budget
• Gathering financial documents before you apply
• Talking with a loan officer about potential financing scenarios

Preparation won’t eliminate changes in the market, but it can help you better understand your options when you’re ready to make a decision.

Market Uncertainty Doesn’t Have to Mean Decision Uncertainty

Mortgage markets change. Your homeownership goals don’t necessarily have to change with them.

The goal isn’t to perfectly time the market. It’s to understand your choices well enough to make an informed decision when the home, timing and financing make sense for you.

Whether you’re beginning to think about buying, actively shopping for a home or reconsidering your plans because mortgage rates have changed, BankSouth Mortgage is ready to help you understand your options.

Ready to Start the Conversation?

Have questions about today’s mortgage market?

Tell us a little about your home financing goals. A BankSouth Mortgage loan officer can help you understand your options and determine a next step based on your needs.

Frequently Asked Questions About Mortgage Rates